Wednesday, 18 December 2013

The Office for
National Statistics (ONS) has released the latest set of UK labour market data,
mostly covering the three months to October this year. Christmas always brings
us a showing of ‘It’s a Wonderful Life’ but this year the ONS has added to the
festive mood by giving us a wonderful set of official jobs figures.

The quarterly
250,000 net increase in total employment is a big as one might once have
expected in a full year. Employment is up in all parts of the UK, except
Northern Ireland which saw a slight fall in the quarter, with a sharp rise in
job vacancies helping an additional 50,000 16-24 year olds into work. And while
the overall figure of more than 30 million people in work still leaves the UK
employment rate (72%) below the pre-recession rate (73%) it is a landmark worth
celebrating, as is the record 10% of over-65s with jobs.

The private sector
(employees and self-employed) accounts for the bulk (246,000) of the increase,
with jobs in real estate (up 16,000, +2.8% and construction (33.000, +1.6%) particularly
strong in the latest quarter, indicating the degree to which the housing market
is a key propellant of the UK’s current economic recovery, though manufacturing
added 17,000 more jobs too. But surprisingly even the public sector has added 4,000
jobs this quarter, due entirely to net hiring of 10,000 by the NHS. In this
context, even the further increase of 25,000 in the number of people working
part-time who want a full-time job (to a record high of 1.472 million) may
conceal an element of good news if it means more part-timers think there may be
more full-time work to be had.

Equally remarkable
is the 99,000 quarterly drop in unemployment, unemployment falling everywhere
apart from in London, the South West and Northern Ireland. Especially pleasing
is the 19,000 fall in youth unemployment and the 33,000 fall in the number of
long-term unemployed. And the number of Jobseeker’s Allowance claimants is down
by 36,700 in November. With the unemployment rate now at 7.4% - lower than at
any time since 2009 - analysts might have to revisit the odds of the rate
falling below 7% sometime next year.

By contrast, the average
earnings figures take some of the Christmas sparkle off the jobs figures, with
employers keeping a Scrooge like grip on regular pay increases which on the
measure published by the ONS today continue at a sub-inflation rate of just
0.8%. However, the alternative ASHE measure published by the ONS last week
suggests that earnings might be rising somewhat faster than this, so maybe the
New Year will bring a bit more cheer on the pay front too.

Thursday, 12 December 2013

The Office for
National Statistics has just published the provisional findings of the 2013
Annual Survey of Hours and Earnings (ASHE). There are a number of surprises and puzzles.

The growth in median
weekly earnings of 2.6% for all employee jobs (full-time and part-time) between
spring 2012 and spring 2013 is considerably higher than the corresponding
figure of 1% pay growth indicated by the ONS’ average weekly earnings statistics.
The median increase for part-timers (3.1%) was higher than that for full-timers
(2.2%), while median hourly earnings increased by 3.4% for part-timers and 2%
for full-timers. Although the ASHE findings show pay growing more slowly than
CPI inflation (2.4% in April 2013) they therefore suggest a less severe average
real pay squeeze and a more limited cost of living crisis than previously
thought.

The still very wide
hourly pay gap between the top and bottom 10% of earners stabilized last year (both
groups seeing a 1.5% pay increase between 2011 and 2012) but middle earners did
better, median hourly earnings rising by 2%. The ‘squeezed middle’ were thus
less squeezed than higher and lower earners last year. However, the hourly
gender pay gap for full-time employees widened again, up from 9.5% to 10%. And median
weekly earnings grew by more for private sector (2.3%) than for public sector
(1.6%) workers.

A particularly
puzzling feature of the ASHE findings is that they show growth in median weekly
pay across the UK regions between 2012 and 2013 to be a mirror image of regional
unemployment rates, with unemployment hot spots registering the biggest pay
rises. For example, the North East (3.5%), West Midlands (3.3%) and Wales
(4.4%) saw much stronger pay growth than regions with less unemployment, with
the South East registering no pay growth at all. While the reasons for this
require much closer examination – and remember pay levels are higher in low
unemployment regions - the much
commented upon post-recession tendency for workers to ‘price themselves into
jobs’ does not therefore appear to be evident for all regions in these latest
data.

Thursday, 5 December 2013

We’ve just had the
Autumn Statement by the Chancellor
of the Exchequer and the latest Office
for Budget Responsibility (OBR) economic and fiscal forecast:

As expected, the
OBR is more optimistic about prospects for the UK economy in 2013 and 2014 than
forecast at the time of the Budget, though it is slightly more pessimistic
about the period from 2015 to 2017. While the Chancellor emphasized the OBR’s positive
message for this year and next, the OBR is in fact therefore still forecasting
a rather subdued outlook for the UK economy for much of the rest of the decade.
Moreover, the short-term improvement is driven by higher than expected
household consumption, with business investment and net exports weaker than
forecast at the Budget. As a result the economy remains on an unbalanced and low
productivity growth trajectory.

Despite this the
OBR has become considerably more optimistic about the outlook for both
employment and unemployment, which is expected to fall to 7% by the end of 2015.
However, this welcome outcome is due to continued weakness in pay growth in the
private sector and much slower pay growth in the public sector. The recovery is
thus forecast to be ‘jobs rich but pay-tight’. Average earnings are forecast to
rise by only 2.6% in 2014, with subsequent improvement still below the rate
prevailing prior to the recession, although with CPI inflation forecast to fall
back to the target rate of 2% by 2016, the OBR is forecasting an end to the squeeze
in real earnings.

Slower than
expected public sector pay growth means that the OBR is now forecasting
slightly fewer public sector job cuts than at the Budget. But even on the
latest forecast, general government employment is forecast to fall by 1.1
million between 2010 and the end of the forecast period and by 720,000 during
the current Parliament.

The Chancellor’s
announced welfare and employment measures targeted at the young unemployed are
welcome but the impact remains uncertain. For example, the cut in employers’ National
Insurance contributions for under 21 year olds is likely to involve a
considerable deadweight element – reducing the net impact on job creation – and
may create a disincentive to hire young people aged between 21 and 24.

Wednesday, 13 November 2013

The Office for
National Statistics (ONS) has released the latest set of UK labour market data,
mostly covering the three months to September this year. The Bank of England has
also published its latest quarterly Inflation Report.

The labour market
data are unusually good – these employment figures offer the most optimistic reading
since the start of the recession. Almost all the key indicators are pointing in
the right direction. The number of people in work increased by 177,000 in the
quarter (full-timers accounting for almost 90% of the increase). Unemployment fell
by 48,000 to 7.6%, with welcome falls in both youth unemployment (down 9,000)
and long-term unemployment (down 19,000). The only obvious downside is that underemployment
has increased - the number of part-time workers who want a full-time job has
risen to 1.457 million – while the 0.8% rate of growth in regular pay remains
well below CPI inflation.

The combination of
much better jobs figures but continued weak pay growth also form the
centrepiece of the Bank of England’s Inflation Report. The Bank is far more
optimistic on economic growth and unemployment than it was in August, going as
far as to suggest that there is an evens chance that the unemployment rate will
fall below 7% by the end of next year. The outlook for inflation has also
improved, with the 2% CPI target now within sight of the actual figure.
However, the Bank remains rightly cautious about the extent of slack in the
economy – as measured by both unemployment and underemployment - and prospects
for renewed growth in productivity. As
long as underemployment and weak productivity growth remain the order of the
day, workers can’t expect much in the way of pay increases even if lower price
inflation eases the cost of living squeeze. So don’t be fooled into thinking
that the welcome improvement in the jobs figures signals an early end to
austerity.

Particular
excitement about the chances of the unemployment rate falling below 7% - which
the Bank today reiterated would not be a an automatic trigger for higher interest
rates – has been caused by the ONS’ latest single month estimate of unemployment,
which fell to just 7.1%. But analysis contained in the Bank’s Inflation Report
demonstrates that sampling issues in the Labour Force Survey render these
monthly estimates both volatile and unreliable. However, with unemployment now such
a key indicator in the Bank’s policy of forward guidance on monetary policy, it
is surely time for both the Bank and HM Treasury to instruct the ONS to enhance
the Labour Force Survey so that reliable monthly estimates of unemployment can
be made available.

Wednesday, 16 October 2013

The Office for
National Statistics has released the latest set of UK labour market data,
mostly covering the three months to August this year. The headline employment
number is very good – the number of people in work increased by 155,000 (almost
all of this full-time work) in the latest quarter and the level of job vacancies
is at a five year high. The number of Jobseeker's Allowance claimants fell by
more than 40,000 – the biggest monthly fall for 16 years.

However, the
subsequent ‘record number in work’ headlines are a tad misleading – the employment
rate remains well below the pre-recession peak. And while there are now more
vacancies than in autumn 2008 there are still around a quarter fewer vacancies than
before the recession hit in spring 2008.

As a result, these
good employment figures are having relatively little impact on unemployment,
especially youth (16-24 year olds) unemployment which is unchanged on the
quarter at still close to 1 million. The overall unemployment rate remains very
high at 7.7% and indeed jumped to 8% in the final month of the quarter. Meanwhile,
underemployment, as measured by the number of part-time workers who want a full-time
job has risen to a record level of 1.45 million.

This continued
high rate of unemployment and underemployment shows that the labour market is
not tightening in any noticeable sense and, for the time being at least, remains
an ‘inflation free zone’ as far as the Bank of England will be concerned. An
unemployment rate of 7% or less, which might trigger an interest rate rise, still
looks to be a distant prospect.

The underlying weakness
of the labour market is reflected in a depressing fall in wage pressure, with
growth in regular pay now running at just 0.8%, way below consumer price
inflation at 2.7%. Workers in the public sector are now bearing the brunt of
the real pay squeeze, adding to the pain imposed by job cuts in the order of
10,000 per month. This degree of real wage squeeze is not conducive to a strong
and sustained recovery in the UK economy. The ‘cost of living crisis’ is an
economic crisis.

Wednesday, 18 September 2013

A lot of economists at present reckon the new Bank of
England Governor, Mark Carney, is too pessimistic in his current expectation
that it will be almost three years before the UK unemployment rate falls to 7%
(a figure that has acquired totemic status in the emerging era of ‘forward
guidance’ when it comes to assessing likely moves on monetary policy). Emerging
optimism is based on recent evidence of stronger growth in both output and employment
which in recent months has pushed the headline unemployment rate down to 7.7% -
already considerably lower than most economists were originally forecasting for
the end of 2013. A majority therefore think the 7% unemployment benchmark rate
will soon appear on the horizon and be reached by the end of 2014.

This view seems based on the assumption that employment
will continue to grow at close to the pace achieved in the summer months, and
might even accelerate in the coming months if confidence about prospects for the
economy improve still further. Surveys of employers’ hiring intentions – such as
the latest Employment Outlook published today by the Recruitment and Employment
Confederation – underscore this bullish mood, reporting that as many as 50% of
employers intend to expand staff levels in the next quarter.

However, the Bank of England is likely to put at least
as much weight on the reports of its own Agents, who talk to organisations
around the country and produce a monthly report, the latest issue of which is
also published today. This paints a somewhat different account of the short-run
employment outlook.

According to the Bank’s Agents, while business
activity has improved there were indications of only a ‘slight increase’ in
staffing levels over the next six months. Overall, employment was reported to
be rising only modestly, and by less than output, so that productivity was
gradually improving (which is good news given the UK’s widening productivity
gap with other economies, as referred to in my earlier blog this morning).
Employment intentions were found to be weakest in consumer services (by far the
biggest sector of employment in the economy) where employers were set to
respond to increased demand by increasing employee hours rather than taking
more staff on. Employment intentions were strongest in construction, a further
sign of the degree to which the housing market is leading the emerging economic
recovery.

Just why one sees such divergence in indicators of
employment intentions is unclear. But if the Bank’s Agents’ report proves right
we are heading for a ‘jobs lite’ rather than ‘jobs rich’ recovery, at least in
the short-run. If so, at a time of continued strong growth in the supply of
labour to the UK economy, it might take considerably longer than a year before
we see the unemployment rate fall to 7%.

The Office for
National Statistics (ONS) this morning published its first estimate of how labour
productivity in the UK compares with the other major industrialised economies
(the G7).

The bad news is
that the UK is falling fast down the international productivity ranking. Output
per hour in 2012 was 16 percentage points below the average for the G7 major
industrialised countries – the widest ‘productivity gap’ for almost two decades
(since 1994). The relative improvement in the UK’s productivity performance
from the mid-1990s to the late 2000s has clearly gone into reverse in an
economy reliant on falling real wages, rather than increased output, as the
main driver of employment growth. According to the ONS output per hour in 2012
would have been 15 percentage points higher had the pre-recession rate of
growth been maintained. Though some of this latter growth may have been ‘illusory’
in that it was propelled by an unsustainable boom, the UK economy clearly needs
in particular a strong resurgence of business investment in order to regain its
pre-recession productivity mojo.

The drop in the UK’s international productivity ranking in 2012 proves
that strong employment growth fuelled by falling real wages is symptomatic of
relative economic weakness rather than strength. While the real wage squeeze is
preferable to even higher unemployment, these latest international productivity
figures show the UK economy can’t be deemed to be experiencing a genuine
recovery until we see firm evidence of both stronger output growth and rising
real incomes.

Monday, 16 September 2013

Last week the
Office for National Statistics (ONS) published the annual snapshot of the UK’s
occupational profile, as obtained from the Labour Force Survey (LFS) in the
second quarter (April-June) this year. I’ve been comparing the numbers employed
in each occupational category back to 2011 (reliable comparison with earlier
data is not possible because of changes to way in which occupations are
classified).

Those interested
in the broader findings might like to see today’s Financial Times and The Telegraph. But given that many readers of this blog work are HR professionals I
thought I’d focus here on the number of people employed in HR management and development
roles.

According to the LFS
there are currently 414,000 people employed as HR managers and directors
(138,000), HR officers (130,000) or vocational and industrial trainers or instructors
(146,000). The total is 6,000 (+1.5%) higher than in 2012, which was also 6,000
higher than the total in 2011. This is a healthy increase - in percentage terms
just a little shy of the corresponding increase in total UK employment –
especially since public sector HR has been under considerable pressure in
recent years

However, all of
the net employment growth since 2011 has been in HR manager and director (up
24,000, +21%) and HR officer (up 1,000, +0.8%) roles. By contrast the training profession has taken
a hit – down 7,000, -4.4% - perhaps also linked to public spending cuts but
disappointing given constant business rhetoric about upskilling the UK workforce.

HR remains a strongly
feminised sector. 6 in 10 people working in HRD are women – the proportion of
women highest amongst HR officers (73%) and HR managers and directors (61%),
though there are equal proportions of men and women in training roles.

Adjusting for
statistical re-classification the total UK HRD workforce is now around 60,000 (17%)
bigger than in 2001 when these estimates were first provided on an annual basis.
More people therefore now work in HR than in entire sub-sectors of the economy
like agriculture, forestry and fishing, mining and quarrying and gas,
electricity and water. This explains why HR professionals argue that improving
the quality of HRD is important to the future prosperity of the UK. It also
highlights the challenge facing the Chartered Institute of Personnel and
Development (CIPD) and other bodies seeking to raise standards in the
profession. The LFS estimates suggest that at most only 1 in 3 people working
in HRD in the UK is a CIPD member. At a time when HR is struggling to maintain
its reputation in the eyes of CE0s and employees alike, the CIPD in its
centenary year still faces a major task in reaching out to the bulk of the UK’s
expanding HR workforce.

Wednesday, 11 September 2013

It’s one of those
bumper months for official labour market statistics. This morning the Office
for National Statistics (ONS) published the latest quarterly household Labour
Force Survey (LFS) estimates for May-July 2013, Jobseekers Allowance (JSA) claims
for August 2013, the (largely employer based) Workforce Jobs estimates for June
2013, and public and private sector employment estimates for June 2013.

This is by far the
strongest overall set of official UK labour market figures this year and
indicates that the summer surge in economic growth was accompanied by a jobs
surge. Not only did the number of people in work increase by 80,000 in the
quarter, according to the LFS Force Survey, but the ONS’s alternative quarterly
survey of employers shows that businesses added 168,000 jobs between March and
June. Moreover, all the quarterly net job growth was in full-time employment
for employees on permanent contracts – the numbers of people working part-time
(down 15,000), on temporary contracts (down 37,000) or self-employed (down
27,000) all fell.

Encouragingly almost
all parts of the private sector added jobs, including manufacturing, but the
stand out sector is real estate which saw a jump in employment of almost 10% (50,000)
in the second quarter of the year, almost certainly a reflection of the recent
resurgence in housing market activity.

The summer jobs
surge was not matched by a corresponding fall in unemployment because more
people entered the workforce. Indeed youth unemployment and male unemployment increased
slightly (up 9,000 and 15,000 respectively), and the south of England performed
generally better than the north. But the overall unemployment total did
register a decent quarterly drop of 24,000 while the unemployment rate dipped
to 7.7% (down from 7.8%), with the number of people long-term unemployed
unchanged and the number claiming JSA falling by almost 33,000.

The ONS figures
also confirm that (adjusting for statistical reclassifications) the number of
people employed in the public sector fell by 437,000 in the three years between
June 2010 and June 2013. This already exceeds the initial (October 2010) Office
for Budget Responsibility projection of 390,000 public sector job cuts for the
entire five years of the current Parliament. With public sector employment set
to continue to fall at a rate of more than 30,000 per quarter for several years
to come, this illustrates the current speed and scale of public sector downsizing.

The ability of
private sector job growth to easily offset public sector job cuts of this
magnitude has been one of the most remarkable features of UK economic
performance in recent years, though as today’s figures also make clear this is
due in large part to the weakness of pay growth. The rate of growth of average
earnings excluding bonuses fell from 1.1% to 1% between June and July. With
unemployment still very high, pay increases show no sign of getting anywhere near
the rate of price inflation any time soon – the big squeeze on living standards
goes on and on.

Wednesday, 14 August 2013

There is some good news in the latest jobs figures, published earlier today by the Office for National Statistics – 69,000
more people in work in the quarter April-June, a small fall of 4,000 in unemployment, 29,200
fewer people claiming Jobseeker's Allowance in July, 19,000 more job vacancies and
17,000 fewer redundancies. All this suggests that things are moving in the right direction, albeit volatility in the quarterly data make the underlying trend difficult to assess while the likely rate of progress in the remainder of the year remains uncertain. Independent surveys of employers' hiring intentions, including those published by the Chartered Institute of Personnel and Development earlier this week, suggest the news will remain broadly positive. Yet despite this there are enough worrying signs about the underlying state
of the UK jobs market to dent the enthusiasm of those tempted to swallow uncritically the more upbeat economic narratives that have surfaced in recent weeks.

The latest quarterly rise in employment is almost matched by an
increase in the size of the workforce, which means the unemployment rate is
unchanged at 7.8%, suggesting that the Bank of England might be right to think the jobless rate will remain above 7% for some considerable time yet. Corresponding population growth also means that the employment rate has more or less flat-lined since last autumn. Meanwhile, in line with the general trend of late, the number of men unemployed has increased by 15,000. Youth
unemployment has also increased by 15,000 (on its way back toward the 1 million mark once more), with the number of 16-24 year olds
in work sharply down by 92,000. Long-term unemployment has increased by 7,000 (to over 900,000) with the number of people unemployed for more than two years approaching half a
million (474,000).

Moreover, while job security might have increased a little (the quarter saw a big drop of 70,000 in temporary employment, suggesting that permanent posts account for all the net new jobs created between April and June) underemployment has also increased and the squeeze on pay has continued. The number of part-time workers who want a
full-time job jumped 25,000 to 1.4 million in the
quarter. And although the headline rate of growth of average
earnings has increased to above 2%, regular pay (adjusted for bonus payments)
is only rising at 1.1%, well below the 2.8% CPI inflation rate.

The headline jobs figures may continue to be broadly
positive but one only has to dig a little deeper into the statistics to see
that millions of people are still being hit by a combination of lack of
jobs and a ceaseless sharp fall in the real value of their pay. This doesn't look or feel like an economic recovery to write home about.

Wednesday, 17 July 2013

I’ve had a quick look at the latest labour market
statistics from the Office for National Statistics, mostly covering the quarter
March-May 2013. These are overall a good set of jobs figures, with the
positives on balance stronger than the negatives. Employment is up by 16,000 on
the quarter (though, alongside population growth, not by enough to prevent a
fall of 0.1 percentage points in the employment rate) and unemployment has
fallen on both the Labour Force Survey (down 57,000) and JSA benefit count
measures (down 21,200 between May and June). The unemployment rate fell by 0.2
percentage points to 7.8%.

The best news of all is a strong quarterly rise in
full-time employment of 28,000 and increased working hours (the number of
people in part-time employment fell by 12,000). Alongside a fall in temporary
employment (down 15,000) and self-employment (down 28,000), fewer redundancies
(down 19,000) and more job vacancies (up 24,000), this suggests that confidence
is returning to the jobs market with employers cutting back on contract workers
in favour of permanent staff.

Overall women have again fared better than men in the
latest quarter (14,000 more in work and 41,000 fewer unemployed, the
corresponding figures for men being 2,000 and 16,000) and there has been a
welcome fall in youth unemployment (down 20,000 for the 16-24 year age group as
a whole although this is almost entirely due to a fall in the number of young
people in full-time education seeking work – the number of young people in work actually fell by 31,000 on the
quarter).

Less welcome is news that long-term unemployment is
continuing to rise (up 15,000 on the quarter to a 17 year high of 915,000) and
that the number of people of working age who are economically inactive is also
increasing (up 87,000, though again this is partly due to fewer full-time
students looking for work who are as a result classified as economically
inactive rather than unemployed). Not everybody is therefore benefiting from
the overall improvement in the labour market.

Likewise, despite a slight
increase to 1% in the rate of growth of regular pay, pay rises continue to lag
well behind inflation (running at 2.7% on the CPI measure in the corresponding
quarter), suggesting that our struggling economy is able to create more jobs
only because people are desperate to price themselves into work. This is not a
recipe for either economic or social well-being and should be viewed as a sign
of continuing labour market malaise whatever the headline jobs and unemployment
figures show.

Wednesday, 12 June 2013

The Institute of Fiscal Studies (IFS) analysis,
published today, of the interaction between pay, employment and labour
productivity in the UK since the start of the financial crisis is the latest output
from what’s becoming a cottage industry examining the so-called ‘productivity
puzzle.’ John van Reenan at the LSE’s Centre for Economic Performance has done similar
work, as has the TUC which published its report on the subject yesterday.

The broad conclusion to be drawn from all this
analysis – which chimes with my own view as expressed in previous blogs - is
that a combination of increased outsider power in the labour market, caused by
an expanded supply of labour, and reduced insider power, resulting from the diminished
influence of trade unions in the workplace, has altered the UK’s trade-off
between real wages and employment. This changing trade-off is apparent in data
stretching back a decade but has only really been noticeable since the start of
the crisis with, as the IFS notes, real wages falling by more than in any
comparable five year period and associated robust employment growth resulting
in a big drop in productivity rather than a 10% unemployment rate.

We can debate until the cows come home as to how to
view this. Few would argue that downward adjustment of real wages is preferable
to a large shake-out of jobs when an economy is depressed. The IFS reiterates
this, going on to note that as a result ‘the long term consequences of this
recession in terms of labour market performance may be less severe than
following the high unemployment recessions of the 1980s and 1990s.’ But what we
don’t know is whether there will be lasting economic implications of a
prolonged squeeze on real pay. A low rate of capital investment is the long-standing problem of the UK
economy – thirty years of labour market deregulation has not been a spur to a
high productivity economy and several years of falling real wages will surely
diminish the incentive to invest still further.

However, what is most intriguing about the IFS
analysis is that it to some extent rewrites the accepted narrative of how
businesses responded to the recession. Back in 2010 it was widely asserted that
CEO’s and HR managers in larger firms had learnt the lessons of previous
recessions and were holding onto staff during the downturn rather than
resorting to large scale redundancies. Although this meant a fall in
productivity while order books were thin, and hence a rise in unit labour costs
and a squeeze on profits, business could either meet this out of healthy cash
reserves or keep a tighter rein on pay, aided by a more equable employment
relations climate. Small firms by
contrast were said to be hit hard by restrictions in bank lending, and with little
or no cash reserves to fall back on were cutting jobs, if not going to the
wall. As a result the business lobby was calling on the incoming coalition
government to freeze the National Minimum Wage and cut employment red tape,
especially for small firms, to preserve jobs.

In fact, the IFS finds, it was mainly larger firms who
cut jobs whereas small firms were more likely to keep workers on at lower pay
in order to limit the impact of a fall in productivity on unit labour costs.
With credit hard to come by but labour getting cheaper, small firms instead cut
investment rather than jobs, this probably further reinforcing the drop in productivity.
The IFS shows that firms with fewer than 50 employees suffered a productivity
fall of 7% relative to a pre-recession trend, compared to no change for firms
with more than 250 employees.

All this suggests that an explanation for what’s
happened to UK jobs, pay and productivity in recent years mainly revolves
around the balance of power between bosses and workers in small firms, where
employment relations are highly individualised and staff are most exposed to
the availability of an abundant supply of people in the external labour market.
It also suggests that the micro-economic policy response lies in easing credit
constraints to small firms and supporting their ability to invest in physical
and human capital in order to boost productivity, rather than further watering
down of employment regulations which would simply reinforce the foundations of
our low-pay, low productivity economy.

The Office for National Statistics has released the
latest set labour market data, mostly covering the three months to April this
year. The headline labour market figures look slightly better than those in
recent months, with total employment 24,000 higher than the previous quarter, total
hours worked on the up and total unemployment down 5,000. There has also been
an encouraging increase in job vacancies (reducing the average number of
unemployed people per vacancy to below 5 for the first time for several years) while
the number of people claiming jobseeker’s allowance has fallen by 8,600. The
rate of growth in total weekly earnings has jumped from a paltry 0.6% to 1.3%. However,
the underlying picture is more mixed.

The number of men in work has fallen by 14,000 with a
further 63,000 men becoming economically inactive – the headline fall in male unemployment
of 12,000 therefore masks a weakening labour situation for men. By contrast, the
number of women in work has increased by 38,000 but this has coincided with a quarterly
rise in female unemployment of 7,000, mainly because 33,000 stay at home mums
entered the labour market. Similarly, the number of over-65s in work has
increased by 38,000 – taking the total number of people in employment in this
age group above 1 million for the first time – while employment amongst 16-24
year olds has fallen slightly (down 4,000). For men and women as a whole, the
number of people long-term unemployed (i.e. jobless and looking for work for
more than a year) increased by 11,000.

Private sector employment has increased by 46,000, driven
by 21,000 more people becoming self-employed, but public sector employment
continues to fall (down 22,000 in the first quarter of the year). Moreover, for
the economy as a whole, the number of people being made redundant has
increased. The underlying rate of fall in public sector employment continues to
be slightly lower than Office for Budget Responsibility projections. This suggests
either that the rate of public sector job cuts will accelerate between now and
the General Election in 2015 or that the final net loss of public sector jobs
will be somewhat lower than currently expected.

The regional pattern of ups and downs in the labour
market is also mixed, with the West Midlands being the big loser in the latest
quarter (the latter region suffering a fall in employment of 43,000 and an
increase in unemployment of 19,000). But the UK’s ‘Celtic fringe’ is having a
much better 2013, in marked contrast with the jobs drought outside of England
in 2012. Employment is up by 43,000 in Scotland, 10,000 in Wales and 24,000 in
Northern Ireland. Unemployment is down
in Scotland and Northern Ireland and unchanged in Wales.

The improvement in pay growth is also slightly
deceptive. Stripping out the effect of very large spring bonus payments for
some workers in the private sector, the underlying rate of growth in weekly
earnings (i.e. regular pay) remains weak at 0.9% and still well below the rate
of price inflation.

Taken together, these mixed jobs figures suggest the
UK labour market is experiencing a modest improvement compared with recent
months, which is consistent with broader evidence for the economy as a whole.
But the news is better for some groups of workers than others and with
unemployment still at 7.8% and real pay being squeezed the hard slog continues
for people at work and job seekers alike.

Monday, 10 June 2013

When the global financial crisis first hit the UK
labour market in 2008 it was widely expected that in our increasingly service
based economy women were likely to suffer more than in previous recessions.
Moreover, when the coalition government began to cut public spending in 2010
women were again expected to bear the brunt of the impact of job cuts given the
relatively high proportion of women working in the public sector.

There is a widespread perception that these expectations
have been, and continue to be, fulfilled. The Fawcett Society, a UK campaign
group for women’s rights, talks of a ‘female unfriendly’ labour market. Last week BBC Radio 4’s Woman’s Hour included an item on the particular difficulty faced by
women aged over 50 in finding work. And the plight of women in the UK labour
market has also been stressed in a recent report from the government sponsored
Women’s Business Council “Maximizing Women’s Contribution to Economic Growth.”
The report notes that over 2.4 million UK women are not in work but want to
work, and also suggests that women are currently setting up new businesses at
half the rate of men.

All this comes with repeated calls to government and
employers to make a special effort to help more women into work. Yet while I
fully agree with the need to return the economy to full employment, I’m not
entirely convinced that women are suffering disproportionally. On the contrary,
although men continue to have a higher employment rate than women, Office for
National Statistics data, obtained from the Labour Force Survey, show that women
have generally fared better than men in the five years since the start of the
recession.

Since the first quarter (q1) of 2008 the number of
women in work has increased by more than a quarter of a million (a net rise of
267,000, or +1.2%) while the number of men in work has fallen (a net fall of
70,000, -0.4%). The number of men in employment fell much more sharply than the
number of women in employment in the two years to q1 2010 (-600,000 for men,
-100,000 for women), increased by more than the number of women in employment
in the subsequent two years to q1 2012 (+340,000 for men, +140,000 for women)
but increased by less in the year to q12013 (+194 for men, +240,000 for women).

Most strikingly, the number
of women aged 50 and over in employment is almost half a million (457,000)
higher than at the start of the recession in 2008, the number of men in this
age category in employment having increased by a quarter of a million
(258,000). The employment rate of women
aged 50-64 has increased by 3.3 percentage points since 2008. Employment rates
have fallen for all other working age categories.As for budding entrepreneurs, women account for approaching
two-thirds (203,000, or 63%) of the total net increase in self-employment since
2008, the number of women self-employed having increased by almost a fifth
(19.3%).

Despite this, it is true
that unemployment for women has risen sharply since 2008 and has been above 1
million since 2010. Indeed although the net increase in unemployment has been
smaller for women than men since the start of the recession (408,000 compared
with 492,000), in percentage terms unemployment has increased by more for women
(+60%) than men (+53%). However, the net rise in female unemployment is due to
job shortage rather than job loss, with a substantial net increase of 676,000 in
the number of women participating in the labour market exceeding the net
increase in the number of women in employment. Similarly, there is relatively
little difference between the number of economically active and inactive jobless
women who want to work (2.45million) and the corresponding number of jobless men
(2.36 million). Moreover, the net increase in this so-called ‘want work’
joblessness since the start of the recession is larger for men (513,000,
+27.2%) than women (470,000, 23.7).

While we need to get more women into jobs and close
the gender pay gap – which, incidentally, has continued to narrow in recent
years, so it can’t be said that the increase in the number of women in work is
due to women becoming relatively cheaper to employ - the reality is that women
have generally fared better than men in the labour market since the start of
the recession. It’s therefore far from obvious that the problem of workless
women deserves greater attention than that of workless men.

Tuesday, 28 May 2013

Last Thursday (23 May) I had
the pleasure of participating in a South West Employment Relations Forum
meeting in Bristol, jointly hosted by Acas and the University of the West of England.
My contribution was to reflect on the so-called ‘new normal’ for the UK economy
and what this might mean for employment relations. But the value of the evening
was provided by the assembled managers, trade unionists and academics with
first-hand experience of what’s happening in workplaces up and down the land.

The ‘new normal’ has been
highlighted by some leading UK economists, notably Andrew Sentance, former
member of the Bank of England’s interest rate setting Monetary Policy Committee.
However, while it’s easy to agree that the current period of prolonged slow
economic growth is in marked contrast to what outgoing Governor of the Bank Sir
Mervyn King once described as the ‘nice’ decade from the mid-1990s (i.e.
non-inflationary, continued expansion), the underlying nature of our current
malaise remains a matter of debate.

If stagnation, high
unemployment and falling real wages is purely symptomatic of weak demand, today’s
new normal will eventually give way to better times akin to the pre-financial
crisis state of affairs. We might have to tough things out, perhaps even
suffering a ‘lost decade’ of austerity, but prosperity will be restored. But
what if the economy has changed for good – might hard times be with us for the
foreseeable future? If so, the ‘new normal’ becomes shorthand for an economic
wake-up call, announcing an extended period of at best only limited improvement
in living standards and highlighting the need for fairly radical structural reform
in order that the good times roll once again.

From the workplace perspective
this new normal debate plays out in a contrast between those who reckon the current
squeeze on average real earnings reflects the efforts of workers to price
themselves into jobs in a weak economy or is instead symptomatic of the
emergence of a permanently lower wage/lower productivity economy. For the time
being the jury is out on this question, though it is possible to draw a link
between structural developments in the labour market and workplaces which in
their interaction lead to an unpalatable outcome.

The typical British
workplace is now devoid of collective strength. According to the most recent
Workplace Employment Relations Survey only 35% of workplaces now have any
structure for employment relations – down from 45% a decade ago, driven in
particular by growth in smaller private sector workplaces. At the same time,
the pool of labour available to employers is growing. The proportion of people
long-term unemployed is much lower than in previous recessions, the number of
economically inactive people is falling, and work related immigration remains
at a historically elevated level.

The underlying power of
employed ‘insiders’ to preserve their real standard of pay, let alone push for
more, is arguably back to where it was in the early years of the 20th
century. Admittedly, individual workers with particular skills or talent may be
able to earn more, while those at the bottom of the pay scale are protected by
the national minimum wage. But the average Jack or Jill – the squeezed middle
at work - is increasingly impotent when it comes for asking for a pay rise and
ever more fearful of what might happen if they do.

Although heightened job
insecurity understandably grabbed the headlines last week when the initial
findings of the large scale 2012 Skills and Employment Survey were published,
what was most shocking was evidence of a longer term increase in the percentage
of employees anxious about arbitrary dismissal or victimisation by management.
Moreover, there has been a decline in perceived employee influence over wider
organisational decision making. In other words, whether one looks at pay or
what happens at work, bosses increasingly have the upper hand.

Despite being bad news for
workers, this power imbalance might be considered acceptable if it had some
clear benefit for the economy. But fear is not a recipe for employee engagement
while a slump in real pay is a disincentive to capital investment, which
ultimately determines growth in productivity and the potential for higher pay.

In light of this some
participants at the South West Employment Relations Forum meeting argued that stronger
trade unions offered the best way of restoring power to workers. I’m not so
sure, though largely because it’s difficult to see where the political momentum
for this would come from. But I am convinced of the need for a much higher
profile public debate on this matter. Current discourse is imbued with the
false perception that workers have too many employment rights and that this is
harmful to productivity, jobs and economic growth. The reality is the complete
opposite, an understanding of which ought to be central to discussion of the
kind of ‘new normal’ our economy needs.

Thursday, 16 May 2013

As a keen watcher of the welter of comment on the
employment scene, in recent months I have been particularly intrigued by the
number of press releases and media reports signalling an increase in skills or
talent shortages leading to mounting recruitment difficulties, and warning of
the emergence of a so-called ‘two-speed’ jobs market in the UK.

This strikes me as most odd in an economy with an
unemployment rate close to 8% and a slowing nominal rate of growth in average weekly
earnings (now down to just 0.8%, and a paltry 0.4% including the effect of
bonus payments). A poorly functioning jobs market with lots of structural
problems might encounter a serious mismatch between the supply of and demand
for skills even when unemployment is still very high, though it’s widely accepted
that the UK’s flexible jobs market functions very well. But in any case, if the
labour market was suffering a high rate of structural unemployment and
experiencing widespread recruitment difficulties this would normally be
expected to trigger an increase in wage pressure rather than the ongoing pay
slump at present being experienced.

This casts considerable doubt on all the recent hype
about recruitment difficulties which has doubtless been due to some employers
facing some greater difficulty in hiring staff compared with the depth of the
recession in 2008-09, the perception further exacerbated by the surprising jobs
boom of 2012 which meant that businesses suddenly became excited about taking more
workers on. I have tried in vain to pour cold water on the hype and was
therefore encouraged by the sober analysis of the Bank of England’s latest
quarterly Inflation Report, published
yesterday, which concludes:

“Survey indicators of
companies’ recruitment difficulties have risen, and are closer to, but still below,
historical averages. The (Bank) Agents’ contacts, however, suggest that
difficulties in recruiting suitable staff for available roles are limited to
only a few niche sectors, and are rarely a significant constraint on capacity.”

This conclusion is far more
in keeping with the broader labour market and macroeconomic indicators, albeit
less likely to grab the headlines.

In a sense of course we
always have a two speed, or perhaps more appropriately a multi-speed labour
market, as evidenced by different unemployment rates for different groups and associated
pay relativities. Similarly, there will be times when demand for certain types
of occupational skills increases and vice versa. However, there is little to
suggest any significant recent change in the structural make-up of the jobs
market, whereas there is a lot of evidence that the jobs market as a whole is suffering
from a serious shortfall in demand stemming from prolonged weakness in the
macro economy.

Moreover, insofar as there
are signs of greater two-speed activity in the jobs market this is due not to any
generalised increased shortage of supply of skill or talent but instead to an increasing
excess supply of less skilled people, driven in part by the government’s
welfare to work measures which are pushing more lower productivity individuals into
economic activity. No wonder therefore that the CIPD earlier this week were
reporting that 45 people are currently competing for every available unskilled
job which, as the pay slump further indicates, makes jobseekers reduce their
wage demands and workers ever more fearful of asking for a raise in the
knowledge that their employer is well aware that so many idle hands are waiting
at the door.

Wednesday, 15 May 2013

As I write, the Governor of the Bank of England, Sir
Mervyn King, is still taking questions at what is his last Inflation Report press conference. The Bank’s overall message is
slightly more optimistic than it has been of late – it reckons the economy will
grow a little faster this year than previously forecast, up from 0.9% to 1.0%,
while Consumer Price inflation will be a little lower, albeit still well above
the rate the Bank targets. However, in his opening remarks at the conference
Sir Mervyn also stressed that “this is no time to be complacent – we must press
on to ensure a recovery and bring down unemployment”, a further stark
reminder of which was given by the latest Office for National Statistics labour
market figures, also published this morning.

The UK jobs market clearly took a turn for the worse
in the first quarter of the year. The number of people in work fell by 43,000
and unemployment increased by 15,000 to 2.52 million (7.8%). Men and people on temporary contracts or working as
self-employed contractors are being hit hardest by this latest bout of weakness,
suggesting that employers are primarily making adjustments to the flexible
component of the workforce in the face economic uncertainty. This helps explain
the apparent paradox of a corresponding fall in redundancies, the number of which
will generally rise only when employers are cutting their core permanent staff.

Young people aged 16-24 have also suffered a fall in
employment in the latest quarter (down 46,000) but this has not shown up in
higher youth unemployment, which has actually also fallen by 17,000 because a
large number of those in full-time education have stopped looking for part-time
jobs to supplement their student income.

The English regions have fared particularly poorly in
2013 so far. Most have registered a rise in unemployment in the first quarter,
with the notable exception of the North West which managed a sharp fall in
unemployment (down 18,000) only because a large number of people responded to
an equally sharp contraction in jobs by exiting the labour market. By contrast,
Wales and Scotland have enjoyed both decent employment growth and falling
unemployment, signalling an end to the ‘Celtic jobs drought’ of 2012.

Ironically for the English regions, while 2012 saw
strong employment growth and falling unemployment in a flat lining economy, the
slightly better GDP growth registered in the early months of 2013 has thus been
accompanied by falling employment and a renewed rise in joblessness. With
average weekly earnings now increasing at a paltry rate of just 0.4% – which
means a real cut of 2.4% relative to Consumer Price Inflation – 2013 is shaping
up to be the ‘hard slog’ year for UK workers I anticipated in my annual forecast
last December. Indeed, combining these latest pay and jobs data, the Jobs
Economist Labour Market Temperature Index (LMTI) shows that the UK jobs market
is now as cold as it was two years ago in the spring of 2011.

The LMTI is constructed from
official data on unemployment, (CPI) price inflation, nominal pay increases and
changes in average hours worked per person. A zero reading represents the
economy’s potentially attainable combination of unemployment and real pay
growth, as obtained from Office for Budget Responsibility estimates. A reading above zero indicates excess demand
for labour, a reading below zero (i.e. the chill factor) indicates deficient
demand. An increase in the reading indicates that the labour market is heating
up (conditions improving), a decrease in the reading indicates that the labour
market is cooling down (conditions deteriorating).

The labour market was at its coldest at the depth of
the recession in February 2009, at which time the LMTI reading fell to minus
13. The reading then increased and broadly stabilized through the remainder of
2009 and 2010 before moving back onto a decreasing trend through to the end of
2011. A combination of strong growth in employment, falling unemployment and
moderation in the real pay squeeze saw the LMTI reading rise to minus 5 by autumn
2012. However, since then rising unemployment and a bigger pay squeeze has
again lowered the LMTI reading, taking it back to where it was in spring 2011.

The UK labour market has proved remarkably good at creating
jobs in the past two years but only because people have been desperate to price
themselves into work. As the LMTI shows the prevailing combination of high
unemployment and falling real pay indicates a significant ongoing shortfall in
demand. People in work and jobseekers alike have now experienced five years of
severe labour market chill. And with the somewhat warmer conditions of summer
2012 having given way to a much colder 2013, life in our deep chilled jobs
market looks set to continue for some considerable time yet.

Monday, 13 May 2013

I’ve been away, but got back in time to hear Sir Alex
Ferguson bid farewell to the Old Trafford faithful yesterday. It was the first
time for a while that football has brought a tear to my eye. No matter what
happens to Manchester United from now on, things will never be quite the same
again.

Having supported the club since 1965, then an enthusiastic 8
year old, I recall the immediate post-Busby era of decline and relegation.
Tommy Doc and Big Ron brought back excitement and hope in the decade to the
mid-1980s. But periodic Cup triumphs never translated into the consistency of
performance necessary to win League Championships. Fergie not only eventually managed
to achieve this but also instilled a belief that success would follow success, regardless
of the strength of increasingly powerful opponents. Rarely in the past 20 years
has failure in any one season been by a large margin or persistent, with despair
soon followed by renewed triumph. Time will tell if this era of resilience is
over but I fear that it might be. Manchester United have more than enough
financial resource to remain a top four Premier League club for the foreseeable
future. But somehow I don’t expect the season climaxing months of April and May
to be as adrenaline inducing as they have been throughout the Ferguson era.

I see from the media that quite a lot has been written and
said about Sir Alex’s leadership and management qualities, some of it an excuse
for the kind of management speak guff that one regularly hears. My view is that
if there are wider lessons to be drawn from Fergie’s success they stem not so
much from his ability to nurture and orchestrate talented individual players
into winning teams but rather from a number of key personal values that
underpinned his approach to management. Aside from the obvious need for hard work,
the values that time and again crop up whenever Sir Alex is mentioned are those
of ambition, honesty and, especially, loyalty.

The thing that has shocked me most in organisational life is
the number of people who are satisfied with mediocrity, either because they
prefer to drag colleagues down to their own level or because they can’t be
bothered to make the effort to excel. Such are the enemies of success. Honesty in
the face of such limited ambition or effort is equally important – being honest
with oneself and others, even if as in Fergie’s case this means occasional use
of the metaphorical hairdryer treatment.

Most important of all is loyalty, both to the cause any
organisation sets for itself and to one another within the organisation. Success
cannot be built on lack of trust or betrayal of colleagues in order to satisfy
some personal ambition or objective. No single individual should think of
themselves as being bigger than the team – the disloyalty this breeds is
corrosive to all. Hence Sir Alex’s evident disappointment over the years in
players prepared to leave Manchester United, be it for money or, even worse, in
the belief that they might achieve greater success elsewhere.

Ambition, honesty and loyalty are personal qualities of great
men and women. These are not ‘management skills’ that can be acquired, though
they can be used to influence the behaviour and performance of us lesser
mortals. Sir Alex Ferguson is such a great man. It is that which made him a
great football manager and would doubtless have enabled him to succeed in
another walk of life had the rebuilding of Manchester United not been his ‘impossible
dream’.

Wednesday, 17 April 2013

Baroness Thatcher’s funeral meant that fewer eyes than
usual were directed at this month’s official labour market statistics. Sadly, they
haven’t done anything to lift the funereal mood.

After a period of remarkably strong job growth 2013
was always likely to be a tougher year for the UK labour market, and today’s
triple whammy of bad news delivers the inevitable reality check. Job growth has
stalled, the number of people in work having fallen slightly by 2,000 in the
December-February quarter compared to the previous quarter. Unemployment on the
headline survey measure has risen sharply (by 70,000, though the number of
people on Jobseeker’s Allowance fell by 7,000 in March). Meanwhile, people in
work are not only suffering a real wage squeeze but also seeing barely any improvement
in the cash value of their earnings. The rate of growth in total pay has fallen
from 1.2% to 0.8% (from 1.3% to 1% for regular pay i.e. excluding bonuses)
compared with Consumer Price Inflation at 2.8%. We haven’t seen such weak
nominal pay growth in more than a decade of comparable data.

This rash of bad news doesn’t necessarily mean we are
facing a further ongoing surge in joblessness. While the unemployment rate has
increased to 7.9% most forecasters expect a peak of around 8.2% later this
year. But what looks like the end of the
jobs boom does demonstrate that simply relying on people to price themselves
into work cannot guarantee continued employment growth in an economy still
experiencing a serious lack of demand.

The net fall in employment is due mainly to fewer unpaid
family workers and those employed on government schemes. By contrast the number
of employees grew by 22,000. Moreover, the rise in unemployment is driven by an
increase of 68,000 in the size of the total workforce. Even so what’s clear
from the latest figures is that sectors dependent on discretionary consumer spending
or public subsidy – notably hospitality, the arts and entertainment – are
beginning to shed jobs, while the impact of public sector downsizing has cut
the number of admin and support jobs and jobs in education. In a reverse of the pattern seen in 2012, it
also looks as though the jobs market has taken a particular turn for the worse
in England, with London experiencing a marked reverse following the Olympic
jobs boost. Scotland and Wales saw falls in unemployment.

Overall, today’s figures are in line with what I
expected at the turn of the year. They are bad, especially relative to the
surprisingly good news of last year, but maybe economic policy debate will benefit
from this dose of sombre reality.

Monday, 15 April 2013

The surprising strength
of private sector jobs growth has deflected attention away from what’s been
happening to public sectors jobs, so here is a brief recap. A fuller account
with tables is available at www.thejobseconomist.org

At the end of 2012
5.72 million people were employed in the UK public sector, comprising 5.24
million in ‘general government’ (i.e. central and local government) and 0.48
million in public corporations. This total is 640,000 lower than the peak in q3
2009 and 600,000 lower than q1 2010, the final full quarter before the
Coalition Government was formed.

Part of the total
fall in public sector employment is due to a statistical reclassification of
people employed in English Further Education (FE) Colleges and Sixth Form
Colleges from the public to the private sectors. Adjusting for this the
underlying reduction in public sector employment between q1 2010 and q4 2012 is
410,000 (6.5%). This is a better indicator of the net impact of public sector
job cuts on the overall labour market.

The Office for Budget Responsibility (OBR) projections
for public sector jobs relate only to general government employment. Adjusting
for statistical reclassification there was an underlying fall in general
government employment of 340,000 (-5.9%) between q1 2010 and q4 2012, slightly
less than half the total underlying fall
of 700,000 (-12.1%) the OBR projection implies for q1 2010 to q1 2015. Given the current quarterly rate of decline in general
government employment the OBR projection points to a further total reduction of
340,000 between q1 2013 and q1 2015.

If the OBR
projection proves correct the total fall in general government employment of
700,000 between 2010 and 2015 will match the rise in general government
employment from its previous trough in q2 1999 to the previous peak in q4 2009.
Consequently the Coalition will in five years cut as many general government
jobs as the former Labour Government created in the decade to the end of 2009.

As a point of
comparison, during the most recent previous period of UK public sector
downsizing in the 1990s, general government employment fell by a total of
590,000 (10.8%) with an average reduction of 75,000 per year. The annual
average projected fall in general government employment between 2010 and 2015
is 140,000. On the current OBR projection the Coalition Government is therefore
cutting general government employment at almost double the annual amount
achieved in the 1990s.

The projected
average reduction in general government of almost 43,000 per quarter between
now and the General Election due in 2015 is considerably higher than the
average reduction of 30,000 per quarter since the 2010 General Election. However, although this points to a quickening
in the pace of public sector downsizing, the actual underlying reduction in
general government employment has slowed to around 20,000 per quarter since
mid-2012.

If the OBR is right, almost
half the pain of public sector jobs cuts expected in the current five year
Parliament is still to be felt. This
will almost certainly further exacerbate tension between the government and
public sector trade unions at a time when talk of a general strike is in the
air. But an important caveat should be applied here.

As I have continually
pointed out over the past couple of years, the OBR methodology for projecting public
sector employment takes no account of what’s happening on the ground in public
sector workplaces. This raises the possibility that the OBR, which in 2010
greatly underestimated the scale of public sector job cuts in 2011 and 2012,
may now be overestimating the scale of future cuts. If the current actual quarterly
rate of reduction were to persist, the fall in general government employment
between now and 2015 would be 160,000, limiting the total fall between 2010 and
2015 to 520,000. If so, the worst of the public sector job cuts in this
Parliament are already behind us.

Tuesday, 9 April 2013

Last year I prepared a historical timeline looking at trends in work, human resource management and the related political context during the past century. In the light of yesterday's news of the death of Baroness Thatcher, here is my brief account of what happened during the Thatcher era.

Margaret Thatcher entered Downing Street in 1979 as Britain’s
first woman prime minister. The Thatcher government broke the post-war political
consensus by prioritising low and stable inflation, achieved by controlling the
supply of money, rather than full employment as the principal objective of
macroeconomic policy. Raising economic growth and cutting unemployment were
instead the target of structural or supply side policies, such as de-regulating
markets, privatising state run enterprises, switching more of the burden of
taxation from incomes to VAT, abolition of the Wages Councils, and curbing the
power of trade unions to affect pay bargaining or prevent managers from
changing work practices.

The initial combination of tight monetary policy, tight
fiscal policy and economic restructuring was a major recession, lasting from
1979 to 1981 and soaring unemployment. Unemployment rose above 3 million (close
to 12%), higher than at any time since the 1930s Depression, and remained at
around that level until 1986. Manufacturing bore the brunt of job losses,
partly because tight monetary policy caused the value of the pound to rise
which priced UK goods out of global markets, and partly because the recession
coincided with greater use of advanced robot technology and increased
competition from emerging economies. Society became imbued with a strong sense
of economic insecurity and it was commonly said that people could ‘no longer
expect a job for life.’

The efforts of unions to counter the impact of global
competition and technology on jobs clashed with the Thatcher government’s aim
to fully embrace market forces by weakening union resistance. That resistance
was broken most visibly and violently in the Miners’ Strike of 1984-85 and the Wapping
newspaper dispute of 1986. Broader social unrest was in turn witnessed in a
series of inner city riots, often involving conflict between the police and
disadvantaged ethnic minority communities. Trade union membership, which had
peaked at around 12.2 million in 1980, entered what was to prove the start of a
period of continual long run decline (the number falling to less than 6 million
by 2011).

As in the 1930s, the 1980s witnessed a widening north-south
divide. Recession, increased competition and technology hit manufacturing and
heavy industries, concentrated in the north of Britain particularly hard. By
contrast economic recovery, boosted by reductions in interest rates, a boom in
house prices and a surge in spending on consumer services, favoured the south.
The growing economic power of London and the south east plus the shift from an manufacturing to finance based economy was symbolised by The
Big Bang financial deregulation of 1986 and fictionalised by Harry Enfield’s
comedy creation Loadsamoney, an
employed brash southerner who delighted in flashing his wad of banknotes at
poor, jobless, northerners.

Once the economic recovery gathered pace more generally,
resulting in a sharp fall in unemployment from 1986 onward, personnel
managers in the private sector schooled in the strife ridden post-war era of
collective industrial relations and pay bargaining, made full use of the structural
and legislative changes taking place.

There was a clear strategic decision
to depart from traditional collective procedures and instead focus on employees
as individuals. British managers also started to adopt the new US fashion for calling
personnel management Human Resources management (HR or HRM). This combined the
concept of treating employees as a resource with investment potential with that
of treating employees as people who needed to be nurtured and motivated. More
and more HR professionals started to specialise, focusing on specific roles in
training, reward or diversity. The development of the European Community plus
the emergence of multi-national corporations operating in different countries
in turn set in train a shift toward what would later be labelled ‘global HR.’

HR managers led HR departments and
started to introduce individual performance appraisal, individual performance-related
pay conditioned by market forces rather than national or sectoral collective
agreements, and direct communications between front-line managers and their
employees. Organisations also started to be influenced by the management
practices of overseas businesses, especially in the car industry, that started
to invest in the UK. Increased attention was paid to the quality movement
inspired by management writers like William Edwards Deming whose 1982 study Out of the crisis drew on his post-war
experience of Japanese management practice. Concepts like lean production and
just-in-time systems entered the management lexicon.

British employers and HR gurus
started to talk in terms of ‘flexible firms’ comprising a core of workers on
permanent contracts working alongside armies of temporary staff and
self-employed contractors. Charles Handy published his study on The Future of Work in 1984, forecasting
that fewer people would have a single employer but instead be ‘portfolio
workers’ performing jobs for a number of different employers. The shift of
employment from manufacturing to services also shifted the gender and hours
balance of the workplace, with women taking advantage of the greater
opportunity to work part-time and workers in general more likely to be employed
to work flexible hours rather than on a traditional ‘9 to 5’ basis. Labour market flexibility in turn helped price more low skilled people into jobs, eventually enabling the UK to achieve a lower rate of structural unemployment than seen in the still strongly regulated economies of continental Europe, albeit at the cost of a return to early 20th century style wage inequality.

Government and employers claimed
that greater labour market flexibility explained why unemployment started to
fall rapidly from 1986 onward once strong demand returned to the economy, though part of this improvement was due to shifting some
people receiving unemployment benefits onto incapacity benefits which disguised
the true extent of joblessness and welfare dependency. Unfortunately, however,
as the decade drew to an end, economic recovery once again turned into an
unsustainable inflationary boom (nicknamed the Lawson boom after the then
Chancellor of the Exchequer Nigel Lawson). And as usual a bust was soon to
follow. Unemployment began to rise again
and was soon on its way back to 3 million.

Without an incomes policy to combat rising prices the Thatcher
government instead in 1990 decided to fix the value of the pound and set
interest rates at a relatively high level within the constraints of the European Exchange Rate mechanism (ERM).
The result was a depression of demand which resulted in recession. Alongside political
turmoil caused by the government’s plan to replace the household rates system
of local taxation with a poll tax, this
marked the end of Mrs Thatcher’s 11 and a half year premiership.